Highest Returns to Shareholders over three years
Coastal Contracts Bhd - Perseverance that paid off
Offshore support vessel (OSV) and gas processing facility operator Coastal Contracts Bhd has been looking to its jack-up gas compression service unit (JUGCSU) operations and liftboat business to help it recover from low activities in its OSV building, selling and chartering business following the downturn of the oil and gas industry in the mid-2010s.
That focus has paid off, with Coastal Contracts delivering the highest shareholders’ return among The Edge Malaysia Centurion Club members in the energy sector, with a compound annual growth rate (CAGR) of 20.2% in the period under review from March 29, 2019, to March 31, 2022.
And the key to its stronger performance is its venture outside the country; the Sandakan-based company successfully tapped into opportunities in Mexico with state-owned O&G outfit Petroleos Mexicanos (Pemex). Since 2016, Pemex has been chartering Coastal Contracts’ JUGCSU, which generates an estimated RM120 million to RM130 million in annual revenue for Coastal Contracts from the Gulf of Mexico.
With high gas prices, high gas production on-site and an undersupply of JUGSCUs, an extension is likely for its current bareboat charter that ends in November 2023, analysts said.
Pemex has also roped in a consortium led by Coastal Contracts’ 50%-owned joint venture for a RM4.5 billion contract for a 380 million standard cubic feet per day (mmscfd) onshore gas conditioning plant construction, operations and maintenance (O&M) — Coastal Contracts’ largest contract win in its 40-year history.
The O&M portion of RM3.5 billion will provide the company with recurring income over the next 10 years from FY2024, according to an analyst’s report. Construction has been within budget despite inflationary pressures, Coastal Contracts was quoted as saying.
Meanwhile, its circa RM41 million-per-year liftboat charter to Saudi Aramco comes with annual extension options for two years from September 2022 onwards.
It has not been an easy ride for Coastal Contracts. The crashing oil prices in FY2018 to FY2021 saw huge write-offs and impairments in its shipping segment.
From a net loss of RM583.05 million or RM1.10 per share on revenue of RM158.67 million in FY2018, Coastal Contracts’ strategy of focusing on the gas processing business resulted in a turnaround to RM32.38 million or 6.17 sen per share on revenue of RM161.57 million in FY2021.
The company’s retained earnings stood at RM621.31 million as at March 31, 2022 (3QFY2022), with a net cash of RM127.92 million after deducting total borrowings of RM243.49 million. Financing for the JUGCSU has also been fully repaid this year, RHB Research said in its August note.
Going forward, with Pemex said to be looking for more gas conditioning plants at its Ixachi field to reduce flaring and improve efficiency, Coastal Contracts’ JV is eyeing more projects in gas conditioning, gas storage, gas dehydration and oil processing, TA Research said in June.
And, building on the success of its liftboat charter, the group is pursuing bigger floating asset projects such as floating production storage and offloading (FPSO), floating production unit (FPU), floating storage and offloading (FSO), and floating storage and regasification unit (FSRU). It is also looking to cater to offshore wind turbine installations in the long run.
Coastal Contracts’ founder Ng Chin Heng, in an April 2022 interview with The Edge, said the RM927 million company “will definitely see a more diversified revenue stream” from FY2022 or FY2023.
Coastal Contracts’ share price has doubled to the RM1.60-RM2 range this year from 60sen-80 sen in 2021, following the RM4.5 billion contract win late last year.
With a healthy balance sheet and good project execution, the company is in a good position to turn the promising activity levels in Mexico into future wins. If that pans out, with the recurring income strategy it adopted in the gas processing segment as well as tighter operations in the vessel chartering business, its performance is set to strengthen further.